IPO

Back to the IPO Doldrums?

After initial public offerings (IPOs) had a robust 2014, it looks like 2015 has been a bit quieter, according to a recent article in the Wall Street Journal.  But not because companies aren’t growing.  The companies are doing fine; they’re just not going public, opting instead to court buyers and quietly sell themselves.  The trend away from IPOs isn’t a new one; it’s been in the works at least since the late 1990s.  While some celebrated 2014 as a return to vibrant public capital markets in the United States, it may be that the year was simply an anomaly. 

The question, of course, is whether this trend is a bad one.  The answer depends on the cause.  For any one company, the decision to sell may be exactly the right one, no matter what the IPO environment.  Some business models may work better as a business line within a larger organization, or the two companies may be able to exploit synergies and create a new company that is greater than the sum of its parts.  But it’s not clear that these motives are what’s driving the current trend. 

The Journal found that at least 18 companies that had filed papers with the SEC abandoned their IPOs due to acquisition.  This suggests that companies that are otherwise interested in going public nonetheless find acquisition the more attractive option.  The process of going public and maintaining good standing as a public company has been increasingly difficult (and expensive) over the last several years, due to increasing the regulatory requirements imposed by Sarbanes-Oxley and other follow-on regulation.  Increased regulatory compliance imposes both direct and indirect costs.  Direct costs include the expense of paying internal and external experts (mostly accountants and lawyers) to provide guidance and prepare disclosures.  Indirect costs include the risk of facing either litigation or an enforcement action (or both) due to a misstep in the compliance process. 

A Successful IPO Does Not a Justifiable Bailout Make

There seems to be a lot of confusion about the meaning of GM’s IPO today.  A common narrative in today’s media is that GM’s return to the stock market affirms the wisdom of the auto bailout.  Some tougher customers in the media insist on a higher threshold being met—that taxpayers get back the entirety of their $50 billion investment in GM—before declaring “mission accomplished.” And then there are the rabid partisans who—in their seething animosity toward the Obama administration—reach conclusions devoid of logic and rich only in conspiratorial-mindedness.  For exam

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